While many large-cap semiconductor stocks are outperforming the broader equities market in 2024, Micron Technology (MU) is trailing its peers by a wide margin. Valued at $96.7 billion by market cap, Micron stock is down 44% from the record highs above $157 set this past June.
Let’s see why the chip stock has pulled back so dramatically, and whether it makes sense to invest in the semiconductor giant at the current valuation.
Is Micron Stock Undervalued?
Micron Technology (MU) designs, manufactures, and sells memory and storage products globally. Despite the recent pullback, Micron stock has more than doubled investor returns in the last 10 years. While the semiconductor industry is cyclical, Micron is well-positioned to benefit from the artificial intelligence (AI) megatrend. For instance, demand for memory chips is expected to soar with the proliferation of large language models (LLMs), such as ChatGPT and Gemini.
Micron’s memory chips are part of Nvidia’s (NVDA) new H200 GPUs (graphics processing units). According to Micron, its high-bandwidth chips offer a higher capacity and are much more energy-efficient than rival chips. Notably, Micron has sold out its data center memory it would deliver through 2025, as Nvidia continues to enjoy strong demand from other big tech giants. Further, Micron expects the memory capacity for AI-enabled smartphones to double, resulting in another massive tailwind for the company.
In fiscal Q3 of 2024 (which ended in May), Micron’s data center revenue rose by 85% year over year, while its mobile segment sales growth was higher at 94%. Analysts expect sales in fiscal 2024 to rise by 61% to $25 billion, while the top line might expand by another 53% to $39 billion in fiscal 2025.
Wall Street expects Micron to end fiscal 2025 with adjusted earnings per share of $9.42, indicating a relatively cheap forward price-to-earnings multiple of less than 10x.
Analysts Downgrade Micron Stock
A key reason for Micron’s underperformance can be tied to a recent slew of analyst downgrades. Late last week, BNP Paribas Exane analyst Karl Ackerman issued a double downgrade on Micron from “outperform” to “underperform,” and cut the stock's price target from $140 to $67.
“While some investors correctly anticipate downside risk to near-term results, we think Micron will underperform AI peers through ’25,” Ackerman wrote. The analyst added that a capacity oversupply of HBM (high-bandwidth memory) chips would lead to a faster-than-anticipated market correction, making the risk-reward profile unfavorable at current levels.
Also last week, Raymond James lowered its price target on Micron stock from $160 to $120, while reiterating an “Outperform” rating. The investment firm explained that the lower price target reflects sluggish near-term volume growth in DRAM and NAND markets. However, it stated that the slowdown is temporary, and expects an upcycle to begin in the second half of 2025.
Morgan Stanley piled on this past Monday when the firm lowered its price target on Micron to $100. Analyst Shawn Kim emphasized that while memory is moving higher, the rate of change is near its peak and might result in an oversupply.
Alternatively, Citi remains bullish on Micron stock as it expects the company to benefit from strong DRAM pricing, which is forecast to rise by 66% in 2024 and 14% in 2025.
Despite the recent string of negative notes, the consensus on MU is still a “strong buy” overall. Out of the 27 analysts covering Micron stock, 23 recommend “strong buy,” two recommend “moderate buy,” one recommends “hold,” and one recommends “strong sell.”
The average target price for MU stock is $158.22, indicating an expected upside potential of 81.5% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
